Gold climbed to a fresh five-month high Monday as the European debt crisis continued to pressure the euro and drive investors to the U.S. dollar.

Nymex gold for June delivery closed up US$2.60 to US$1,183.30 per ounce as analysts forecast the metal would break psychological resistance at US$1,200 and test its record high of US$1,227 set in December 2009.

“Gold is not just viewed as an inflation hedge in the current market,” said George Davis, chief technical analyst at RBC Capital Markets. “Given the euro region sovereign risk emanating from Greece, gold is also being used as a hedge against a potential financial crisis.”

He told clients that any lingering uncertainty over the Greek bailout or a “contagion effect” in Europe would be positive for the metal.

While a 110-billion euro bailout package for Greece was approved over the weekend, investors remain skeptical about the prospects for the Eurozone. That lead to further gains for precious metals in May’s first trading session.

“Gold is sort of the anti-currency. A lot of people think the gold price is rising, but you could argue that many of the currencies are just declining,” said Nick Barisheff, president and CEO of Bullion Management Group.

He noted that while gold is only up about 5% in Canadian dollar terms in the past six months, bullion has risen 23% in euros and 19% in British pounds.

“Eventually, all the currencies will go down relative to gold,” Mr. Barisheff said. “The U.S. dollar will probably be the last one. Even though there are a lot of arguments about how weak it is on a fundamental basis, it could rise because it’s the best of a bad bunch and also the most liquid.”

While gold and the U.S. dollar typically move in opposite directions, gains for bullion and the U.S. dollar index yesterday serve as an example of how the two assets are moving in tandem.

The correlation between weekly changes in the U.S. dollar and bullion has turned from -0.7 at the start of 2010 to +0.41. This is the biggest positive since 2007.

Historically, episodes of U.S. dollar appreciation coupled with rising gold prices tend to be fleeting, according to Stéfane Marion, chief economist and strategist at National Bank Financial.

In a recent report he wrote, “...we still think that the historical negative correlation between gold and the greenback will resume once the uncertainty is lifted about the introduction of credible loan programmes between Eurozone partners to help certain members reduce their fiscal deficits.”

According to Deutsche Bank, gold has decoupled from the dollar since at least the end of March. “If the correlation re-establishes itself before July, either the dollar must continue to decline or investment into bullion-backed funds must pick up in order to avoid erosion in gold prices,” analysts at the investment bank said recently.

Adam Kritzer of forexblog pointed out that many are betting that gold will eventually distance itself from the U.S. dollar if and when America’s fiscal problems escalate to the level of a Greek-style crisis. “At this point, gold will start to trade as an alternative to the entire forex market!”

Despite gold’s surge, some bullion bears remain. For example, Barclays Wealth strategist Michael Crook predicts that gold will fall once the crisis premium that was built under prices late in 2008 and early in 2009 comes out of the market. He estimates gold’s fair price adjusted for monetary policy is about US$800.

“There isn’t another market we look at that we really see this type of crisis premium built in anymore,” Mr. Crook said in an interview with TheStreet.com on Sunday. “It is a crisis of high unemployment, zero inflation and very low growth for the foreseeable future. All of those things are bad for gold.”

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